Robert Martineau: State can't make Internet retailers collect tax

Over the past week the Herald-Tribune has devoted a front-page story, a column and an editorial to a Senate bill working its way through the Florida Legislature.

The bill purportedly would force Amazon.com and similar Internet-only sellers to collect the state's sales tax on sales to Florida residents.

The first article reported that a Senate committee had approved the bill. The column, commenting on the legislative activity for the week, listed Amazon as the week's big loser. The editorial applauded the effort, saying it was only fair that Internet-only sellers collect the sales tax, the same as in-state sellers.

There are two problems with the bill accomplishing the goals espoused by its supporters. The first is whether the language of the bill actually reaches Amazon and similar types of Internet-only sellers. The second is even more problematic: whether it is constitutional for the state to impose the sales-tax collecting burden on an Internet-only seller.

The language of the bill does not expressly state that an out-of- state Internet-only seller must collect the tax. It has lengthy and confusing provisions that attempt to establish various bases for the state's authority to require an Internet-only seller to collect the tax, almost all of which relate to the seller conducting some kind of activity in Florida.

The only language that could possibly reach the Amazon-type seller is the definition of a "dealer" obligated to collect the tax. The definition includes a person who "sells ... at retail ... for use or consumption in this state, tangible personal property, including a retailer who transacts a mail order sale." (Mail order sale is defined elsewhere to include an Internet sale, a classic misuse of a definition to include something not within its ordinary meaning. ) If the bill intends to reach Internet-only sellers, it should say so explicitly.

A far greater weakness in the bill is that it almost certainly violates both the due process and interstate commerce clauses of the federal Constitution.

Although the U.S. Supreme Court has never dealt with the question of state power to tax Internet sales, it did in 1992 consider a state's power to force a mail order business to do so. (This was before the Internet became almost universal.) The court said that it would leave it up to Congress to determine whether a state could impose the tax-collecting burden.

Since then there have been many efforts in Congress to permit a state to do so but none has passed. It is unlikely that the court would uphold an Internet-only sales-tax collecting duty without congressional approval.

The more difficult question is the due process clause. The court has held that due process requires that a seller have a sufficient "nexus" or contact with a state before the state can impose a tax collecting duty on it or subject the seller to the jurisdiction of the state's courts.

In the 1992 case, concerning the ability of a state to require a mail-order business to collect the sales tax, the court found that the seller "purposefully directed" its sales efforts at state residents. It then upheld "the imposition of the collection duty on a mail-order house that is engaged in a continuous and widespread solicitation of business within a state."

A purely Internet seller such as Amazon does not meet this test. It does not "purposefully direct" its sales pitch to the residents of a particular state. The Internet, by its nature, exists only in space. It is equally available to a person in Iran or China as in Florida. Its only contact with the state of the buyer's residence is to ship the product there, using a common carrier such as UPS or the U.S. mail.

The editorial supporting the Florida effort to force Internet- only sellers to collect the sales tax refers to the fact that some states have imposed such a duty on Amazon. In fact no state has done so. Amazon has agreed with some states to collect the tax, but this has been only in states where it has a distribution center, thus meeting the traditional "presence" test. These cases have no relevance to Florida.

If Florida wants to impose the sales-tax duty on Amazon or similar Internet-only companies, it will have to wait for congressional and Supreme Court approval. Absent those unlikely events, its only alternative is to persuade them to open a store or some other type of facility here.

Currently it is wasting limited legislative time that it should be devoting to the serious problems facing the state.

Robert J. Martineau of Nokomis is Distinguished Research Professor of Law Emeritus, University of Cincinnati. He also served for several years as an assistant attorney general of Maryland representing the state in sales and income tax matters.